Role of Renewable Energy Consumption, Financial Development and FDI in Promoting Trade and Sustainability: Evidence from Saarc Region

Abstract

Developing countries are dealing simultaneously with environmental issues and trade deficits. The main objective of this study is to investigate the role of renewable energy consumption (REC), foreign direct investment (FDI), and financial development (FD) in promoting trade (imports and exports) and sustainability (ecological footprints).

Panel data are used from 1990 to 2017 of six SAARC countries including Pakistan, Bangladesh, Bhutan, Nepal, Sri Lanka, and India.

The linear and non-linear Auto-Regressive Distributed Lag (ARDL) models are used to examine the dynamic and asymmetric association of renewable energy, foreign direct investment, and financial development with imports, exports, and sustainability.

The results show that renewable energy helps improve sustainability but negatively influences imports and exports. In contrast, FDI and FD enhance the imports and exports but decline the sustainability.

Furthermore, the results confirm the asymmetric nature of the relationship among variables.
To improve trade growth and economic sustainability collectively, more effort should be placed into institutional capacity building and regulation that supports renewable energy use and investment in environment-friendly technology.

Keywords: Renewable Energy Consumption (REC), Financial Development (FD), Foreign Direct Investment (FDI), Sustainability, Imports, Exports

JEL Classification: O44, P28, P33, Q56